Newalta Announces First Quarter 2009 Results



    TSX Trading Symbol: NAL

    CALGARY, May 11 /CNW/ - Newalta Inc. ("Newalta") (TSX:NAL) today
announced financial results for the three months ended March 31, 2009.
    "In Q1, revenue and EBITDA were down 25% and 65%, respectively, compared
to the same period last year. Combined divisional net margin dropped 59% to
$16 million, with the Western Division accounting for 69% of the decline. The
steep decline in lead and crude oil prices compared to last year caused
two-thirds of the drop in EBITDA. After a very slow start to the quarter, the
rest of the business realized a revenue drop of 14% and an EBITDA decline of
24%," said Al Cadotte, Newalta's President and CEO.
    "Recent indications are positive as commodity prices are rising, our
markets are strengthening, and our onsite and heavy oil/SAGD services are
continuing to grow. We have also reduced our cost base and improved the
profitability of our operations. Our business has the capacity to generate
strong cashflow and excellent return on capital.
    "We are at the early stages of a program to restructure and reposition
our business which began with the conversion to a corporation and with
organizational changes as well as significant reductions to our cost base. We
are now focused on driving strong bottom-line performance and reducing our
debt to reestablish benchmarks of performance and to position the business for
sustained profitable growth. Success will drive strong investor returns and
provide the financial resources to continue to build our company."

    
    Financial results and highlights for the three months ended March 31,
    2009

    -   Revenue decreased 25% to $112.5 million compared to Q1 2008. Net
        earnings decreased 123% compared to Q1 2008, to a net loss of $4.4
        million. EBITDA(1) decreased $22.1 million, or 65%, to $12.0 million
        compared to Q1 2008. Excluding the change in commodity prices,
        revenue, net earnings, and EBITDA in Q1 2009 were down from Q1 2008
        by 14%, 51%, and 24%, respectively.
    -   Western's revenue and net margin(1) declined by 30% and 55% year-
        over-year, respectively, due primarily to the decline in crude and
        natural gas prices, which dropped 49% and 38%, respectively, and the
        subsequent impact on North American drilling activity.
    -   Eastern's performance in Q1 declined with revenue and net margin down
        17% and 74%, respectively, due to the 58% decline in lead pricing and
        the weak Ontario economy.
    -   SG&A costs decreased, compared to last year by $1.2 million to $13.6
        million. Q1 2009 SG&A also included non-recurring costs associated
        with severance and organizational realignment.
    -   Maintenance capital expenditures(1) for the quarter were $2.0 million
        compared to $1.2 million in 2008. Growth capital expenditures(1) were
        $6.0 million compared to $16.7 million.

    Other highlights

    -   We amended the terms of our credit facility with our Canadian lending
        syndicate. The primary change to the credit facility is an increase
        of the funded debt to EBITDA covenant from 3:00:1 to 3:50:1 for the
        remainder of 2009. In addition, at the election of Newalta, the
        principal amount of the credit facility was reduced from $425 million
        to $375 million, leaving unused capacity of approximately $66
        million. The maturity date remains October 12, 2010.
    -   Capital expenditures for 2009 have been reduced to $40 million,
        comprised of $25 million for growth capital and $15 million for
        maintenance capital. We continue to expect first half combined
        capital spending to be $15 million.
    -   As we continue to be successful in securing new onsite project work
        across Canada, including heavy oil/SAGD, we expect that a portion of
        the $25 million in growth capital expenditures will be used to fund
        these projects in the second half of the year.
    -   Prudent management of our balance sheet resulted in a reduction in
        working capital to $32.4 million, an improvement of $68.0 million as
        compared to March 31, 2008 and an improvement of $7.6 million as
        compared to December 31, 2008.
    -   At the end of Q1 2009, senior long-term debt decreased $4.3 million
        to $259.0 million, as compared to December 31, 2008. Excess cash will
        be used to pay down debt.
    -   Management realigned the business with market conditions and reduced
        the growth capital forecast and, as a result, 250 positions have been
        eliminated. As well, effective April 1, Newalta suspended its
        matching contributions to the Employee Profit Sharing Plan. These
        actions are in addition to salary and hiring freezes and tight
        controls on discretionary expenditures initiated in late 2008.
    -   Newalta's Board of Directors declared a dividend of $0.05 per share
        to holders of record as at March 31, 2009 which was paid April 15,
        2009.


    FINANCIAL RESULTS AND HIGHLIGHTS

    -------------------------------------------------------------------------
                                                  For the three months
                                                     ended March 31
                                             -------------------------------
                                                                        %
                                                                    Increase
    ($000s except per share/unit data)          2009        2008   (Decrease)
    -------------------------------------------------------------------------
    Revenue                                  112,538     150,176         (25)
    Net (loss) earnings                       (4,381)     19,304        (123)
      - per share/unit ($) - basic             (0.10)       0.47        (121)
      - per share/unit ($) - diluted           (0.10)       0.46        (122)
    EBITDA(1)                                 12,030      34,139         (65)
      - per share/unit ($)(1)                   0.28        0.82         (66)
    Funds from operations(1)                   6,809      27,167         (75)
      - per share/unit ($)(1)                   0.16        0.65         (75)
    Maintenance capital expenditures(1)        2,046       1,249          64
    Dividends/Distributions declared(1)        2,126      23,077         (91)
      - per share/unit - ($)(1)                 0.05        0.56         (91)
    Cash distributed(1)                        7,560      19,136         (60)
    Growth capital expenditures(1)             6,069      16,724         (64)
    Weighted average share/units outstanding  42,402      41,543           2
    Share/units outstanding, March 31,(2)     42,494      41,660           2
    -------------------------------------------------------------------------
    (1) These financial measures do not have any standardized meaning
        prescribed by Canadian generally accepted accounting principles
        ("GAAP") and are therefore unlikely to be comparable to similar
        measures presented by other issuers.  Non-GAAP financial measures are
        identified and defined in the attached Management's Discussion and
        Analysis.
    (2) Newalta has 42,498,860 shares outstanding as of May 11, 2009.

    Management's Discussion and Analysis and Newalta's unaudited consolidated
financial statements and notes thereto are attached.
    

    Management will hold a conference call on Tuesday, May 12, 2009 at 4:00
p.m. (ET) to discuss Newalta's performance for the three months ended March
31, 2009. To participate in the teleconference, please call 416-644-3423 or
1-800-732-9303. To access the simultaneous webcast, please visit
www.newalta.com. For those unable to listen to the live call, a taped
broadcast will be available at www.newalta.com and, until midnight on Tuesday,
May 19, 2009, by dialling 1-877-289-8525 using the pass code 21303582 followed
by the pound sign.
    Newalta Inc. is Canada's largest industrial waste management and
environmental services provider and focuses on maximizing the value inherent
in industrial waste through the recovery of saleable products and recycling.
It also provides environmentally sound disposal of solid, non-hazardous
industrial waste. With talented people and a national network of facilities,
Newalta serves customers in the automotive, construction, forestry, lead,
manufacturing, mining, oil and gas, petrochemical, pulp and paper, refining,
steel and transportation service industries. Providing solid investor returns,
exceptional customer service, safe operations and environmental stewardship
has enabled Newalta to expand into new service sectors and geographic markets.
Newalta Inc. trades on the TSX as NAL. For more information, visit
www.newalta.com.

    
    NEWALTA INC.
    MANAGEMENT'S DISCUSSION AND ANALYSIS
    Three months ended March 31, 2009 and 2008
    

    Certain statements contained in this document constitute "forward-looking
statements". When used in this document, the words "may", "would", "could",
"will", "intend", "plan", "anticipate", "believe", "estimate", "expect", and
similar expressions, as they relate to Newalta Inc., Newalta Income Fund (the
"Fund"), and Newalta Corporation (the "Corporation" and together with Newalta
Inc., the Fund, and other subsidiaries, "Newalta"), or their management, are
intended to identify forward-looking statements. Such statements reflect the
current views of Newalta with respect to future events and are subject to
certain risks, uncertainties and assumptions, including, without limitation,
general market conditions, oil and gas industry, commodity prices - oil,
battery manufacturing industry and commodity prices - lead, debt service,
future capital needs, exchange rates, dependence on senior management,
seasonality of operations, growth, acquisition strategy, integration of
businesses into Newalta's operations, potential liabilities from acquisitions,
regulation, landfill operations, competition, risk of pending and future legal
proceedings, employees, labour unions, fuel costs, access to industry and
technology, possible volatility of the common share price, insurance, debt
service, sales of additional shares, dependence on Newalta Corporation, nature
of the debentures issued by Newalta, Canadian federal income tax, redemption
of shares, and such other risks or factors described from time to time in the
reports filed with securities regulatory authorities by Newalta.
    By their nature, forward-looking statements involve numerous assumptions,
known and unknown risks and uncertainties, both general and specific, that
contribute to the possibility that the predictions, forecasts, projections and
other forward-looking statements will not occur. Many other factors could also
cause actual results, performance or achievements to be materially different
from any future results, performance or achievements that may be expressed or
implied by such forward-looking statements and readers are cautioned that the
foregoing list of factors is not exhaustive. Should one or more of these risks
or uncertainties materialize, or should assumptions underlying the
forward-looking statements prove incorrect, actual results may vary materially
from those described herein as intended, planned, anticipated, believed,
estimated or expected. Furthermore, the forward-looking statements contained
in this document are made as of the date of this document and the
forward-looking statements in this document are expressly qualified by this
cautionary statement. Unless otherwise required by law, Newalta does not
intend, or assume any obligation, to update these forward-looking statements.

    RECONCILIATION OF NON-GAAP MEASURES

    This Management's Discussion and Analysis contains references to certain
financial measures, including some that do not have any standardized meaning
prescribed by Canadian generally accepted accounting principles ("GAAP") and
may not be comparable to similar measures presented by other corporations or
entities. These financial measures are identified and defined below:
    "EBITDA" and "EBITDA per share" is a measure of Newalta's operating
profitability. EBITDA provides an indication of the results generated by
Newalta's principal business activities prior to how these activities are
financed, assets are amortized or how the results are taxed in various
jurisdictions. EBITDA is derived from the consolidated statements of
operations, comprehensive income and retained earnings. EBITDA per share is
derived by dividing EBITDA by the basic weighted average number of shares.
They are calculated as follows:

    
    -------------------------------------------------------------------------
                                                          Three months ended
                                                                    March 31,
    ($000s)                                                 2009        2008
    -------------------------------------------------------------------------
    Net earnings (loss)                                   (4,381)     19,304
    Add back (deduct):
      Current income taxes                                   195         236
      Future income taxes                                 (2,176)     (2,998)
      Finance charges                                      5,580       6,266
      Interest revenue                                         -         (41)
      Amortization and accretion                          12,812      11,372
    -------------------------------------------------------------------------
    EBITDA                                                12,030      34,139
    -------------------------------------------------------------------------
    Weighted average number of shares/units               42,402      41,543
    -------------------------------------------------------------------------
    EBITDA per share                                        0.28        0.82
    -------------------------------------------------------------------------
    

    "Funds from operations" is used to assist management and investors in
analyzing cash flow and leverage. Funds from operations as presented is not
intended to represent operating funds from continuing operations or operating
profits for the period nor should it be viewed as an alternative to cash flow
from operating activities, net earnings or other measures of financial
performance calculated in accordance with GAAP. Funds from operations is
derived from the consolidated statements of cash flows and is calculated as
follows:

    
    -------------------------------------------------------------------------
                                                          Three months ended
                                                                    March 31,
    ($000s)                                                 2009        2008
    -------------------------------------------------------------------------
    Cash from operations                                  30,042       8,745
    Add back (deduct):
    Changes in non-cash working capital                  (23,476)     17,810
    Asset retirement costs incurred                          243         612
    -------------------------------------------------------------------------
    Funds from operations                                  6,809      27,167
    -------------------------------------------------------------------------
    Weighted average number of shares/units               42,402      41,543
    -------------------------------------------------------------------------
    Funds from operations per share                         0.16        0.65
    -------------------------------------------------------------------------
    

    "Net margin" and "Combined divisional net margin" are used by management
to analyze divisional operating performance. Net margin and combined
divisional net margin as presented are not intended to represent earnings
before taxes nor should it be viewed as an alternative to net earnings or
other measures of financial performance calculated in accordance with GAAP.
Net margin is calculated from the segmented information contained in the notes
to the consolidated financial statements and is defined as revenue less
operating and amortization and accretion expenses. Combined divisional net
margin is calculated from the segmented information contained in the notes to
the consolidated financial statements and is defined as revenue less operating
and amortization and accretion expenses for both the Western and Eastern
division. Combined divisional net margin excludes inter-segment eliminations
and unallocated revenue and expenses.

    
    -------------------------------------------------------------------------
                                                          Three months ended
                                                                    March 31,
    ($000s)                                                 2009        2008
    -------------------------------------------------------------------------
    Earnings (loss) before taxes                          (6,362)     16,542
    Add back (deduct):
    Selling,general, and administrative                   13,607      14,835
    Finance charges                                        5,580       6,266
    -------------------------------------------------------------------------
    Net margin                                            12,825      37,643
    -------------------------------------------------------------------------
    Unallocated(1)                                         3,204       1,860
    -------------------------------------------------------------------------
    Combined divisional net margin                        16,029      39,503
    -------------------------------------------------------------------------
    (1) Management does not allocate selling, general and administrative,
        taxes, and interest costs in the segment analysis.
    

    References to, EBITDA, EBITDA per share, funds from operations, net
margin and combined divisional net margin, throughout this document have the
meanings set out above.
    Throughout this document, unless otherwise stated, all currency is stated
in Canadian dollars and MT is defined as "tonnes" or "metric tons".
    The following discussion and analysis should be read in conjunction with
(i) the consolidated financial statements of Newalta Inc. and the notes
thereto for the three months ended March 31, 2009, (ii) the consolidated
financial statements of Newalta Inc. and notes thereto and Management's
Discussion and Analysis of Newalta Inc. for the year ended December 31, 2008,
(iii) the most recently filed Annual Information Form of Newalta Inc., and
(iv) the consolidated interim financial statements of the Fund and the notes
thereto and Management's Discussion and Analysis for the three months ended
March 31, 2008. Information for the three months ended March 31, 2009 along
with comparative information for 2008, is provided.
    This Management's Discussion and Analysis is dated May 11, 2009 and takes
into consideration information available up to that date.

    
    FINANCIAL RESULTS AND HIGHLIGHTS

    -------------------------------------------------------------------------
                                                  For the three months
                                                     ended March 31
                                             -------------------------------
                                                                        %
                                                                    Increase
    ($000s except per share/unit data)          2009        2008   (Decrease)
    -------------------------------------------------------------------------
    Revenue                                  112,538     150,176         (25)
    Net (loss) earnings                       (4,381)     19,304        (123)
      - per share/unit ($) - basic             (0.10)       0.47        (121)
      - per share/unit ($) - diluted           (0.10)       0.46        (122)
    EBITDA                                    12,030      34,139         (65)
      - per share/unit ($)                      0.28        0.82         (66)
    Funds from operations                      6,809      27,167         (75)
      - per share/unit ($)                      0.16        0.65         (75)
    Maintenance capital expenditures           2,046       1,249          64
    Dividends/Distributions declared           2,126      23,077         (91)
      - per share/unit - ($)                    0.05        0.56         (91)
    Cash distributed                           7,560      19,136         (60)
    Growth capital expenditures                6,069      16,724         (64)
    Weighted average share/units outstanding  42,402      41,543           2
    Share/units outstanding, March 31,        42,494      41,660           2
    -------------------------------------------------------------------------
    

    CORPORATE OVERVIEW

    The year started off with a decline in our base business as commodity
prices continued to be soft and our customers deferred waste shipments and
projects to reduce costs and conserve cash. Market conditions and commodity
prices improved throughout the quarter; however, this recovery was not
sufficient to overcome the very weak start. The market appears to have
stabilized as waste shipments continue to improve and project work has been
initiated within our customer base. We responded aggressively through the
quarter to adapt our cost structure to the business environment and growth
investment opportunities. Our pricing for services across all service lines
was maintained.

    
    Table 1: Consolidated Revenue and Consolidated EBITDA
    http://files.newswire.ca/788/2009_Q1_Graphs.pdf
    

    Revenue, net earnings, and EBITDA in Q1 2009 were down from Q1 2008 by
25%, 123%, and 65%, respectively. Combined divisional net margin was down 59%
or $23.5 million, with the Western Division accounting for $16.2 million of
the decline, and Eastern Division down $7.2 million. Commodity price declines,
for lead and crude oil, in Q1 as compared to the prior year represented
approximately two-thirds of the combined margin decline. The remainder of the
decline was related to general weakness in our markets. Excluding the change
in commodity prices, revenue, net earnings, and EBITDA in Q1 2009 were down
from Q1 2008 by 14%, 51%, and 24%, respectively.

    
    -------------------------------------------------------------------------
                                            Impact of  Impact of
                                            change in     market
                                            commodity  and other
                                 Q1 2008    prices(1)    changes     Q1 2009
    -------------------------------------------------------------------------
    Revenue                      150,176     (17,034)    (20,604)    112,538
    Expenses
      Operating                  101,161      (3,203)    (11,057)     86,901
      Selling, general and
       administrative             14,835           -      (1,228)     13,607
      Finance charges              6,266           -        (686)      5,580
      Amortization and accretion  11,372           -       1,440      12,812
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net earnings (loss)           19,304     (13,831)     (9,854)     (4,381)
    -------------------------------------------------------------------------
    EBITDA                        34,139     (13,831)     (8,278)     12,030
    -------------------------------------------------------------------------

    (1) The change in commodity prices is defined as the change in the price
        received for recovered crude oil and the change in the price of lead,
        in each instance, in Canadian dollars.
    

    Since December 31, 2008, continued prudent management of our balance
sheet resulted in a reduction in working capital of $7.6 million to $32.4
million. Senior long-term debt decreased $4.3 million to $259.0 million. The
terms of our Credit Facility were amended on April 22, 2009 in order to
provide additional flexibility to manage our business in the quarters ahead.
The primary change was an increase of the funded debt to EBITDA covenant from
3.00:1 to 3.50:1 for 2009. Other amendments will provide greater flexibility
to manage working capital, issue performance bonds, and absorb restructuring
costs.
    We continued our comprehensive cost control program that included hiring
restrictions, suspended salary increases and restricted travel and other
discretionary expenses. We remain committed to tightly managing costs
throughout 2009. Since November 2008, we have eliminated 250 positions or
12.5% of our workforce through a combination of normal attrition and targeted
staff reductions. Effective April 1, 2009, Newalta suspended its matching
contributions to the Employee Profit Sharing Plan ("EPSP"). Although these
changes did not materially affect our Q1 results, they establish a new cost
base consistent with the current market and projected growth of the business.
    Our planned capital spending for 2009 has been reduced by approximately
60%, from $103 million to $40 million. Maintenance capital is now projected to
be $15 million compared to the previously announced $28 million. Growth
capital spending is now projected to be $25 million, compared to the
previously announced $75 million. As we continue to be successful in securing
new onsite project work across Canada, including heavy oil/SAGD, we expect
that a portion of the $25 million in growth capital expenditures will be used
to fund these projects in the second half of the year. Excess cash will be
used to pay down debt.

    OUTLOOK

    In Q2 2008, revenue was $142.9 million and EBITDA was $26.6 million.
Since the start of 2009, commodity prices have steadily increased. We
anticipate the improved performance experienced late in Q1 across our business
lines to continue in Q2. Aggressive pursuit of onsite projects, projects in
the Heavy Oil business unit and Stoney Creek Landfill volumes are also
anticipated to contribute to Q2 performance. Commissioning the second kiln at
Ville Ste. Catherine will continue through Q2 and is anticipated to be
completed early in the second half of the year.
    The actions that we have taken have rationalized our cost structure in
line with current market conditions and growth investments. These initiatives
will positively impact results in Q2 2009. The Q1 2009 savings from the cost
containment program were mostly offset by the additional reorganization costs,
but we expect to realize the full cost reduction benefit from these
initiatives for the remainder of the year. Commencing in Q2, year over year
cost savings are estimated to be approximately $8 million per quarter. Gains
in managing working capital should also be maintained for the remainder of
2009. With commodity price levels and market activity at current levels, Q2
will demonstrate the continued improvement in performance we began to
experience at the end of Q1. We enter Q2 with improved financial flexibility,
a strengthened competitive position. We are poised to capitalize on
opportunities as the economy recovers.

    RESULTS OF OPERATIONS - WESTERN DIVISION

    Overview

    Western operates more than 55 facilities with more than 750 people in
British Columbia, Alberta, Saskatchewan, Texas and Wyoming. We have
reorganized our business units within the Western Division to Facilities,
Heavy Oil and Drill Site to better align our structure with our key strategic
growth areas. Western is operated and managed as an integrated set of assets
to provide a broad range of seamless waste management and recycling services
to customers.

    
    Western's performance is affected by the following factors:
        -  fluctuation in the price of crude oil
        -  the amount of waste generated by producers
        -  state of the oil and gas industry in western Canada
        -  natural gas drilling activity
        -  fluctuation in the U.S./Canadian dollar exchange rate
        -  the strength of other industries in western Canada, including:
           construction, forestry, mining, petrochemical, pulp and paper,
           refining, and transportation service industries

    The business units contributed the following to division revenue:

    -------------------------------------------------------------------------
                                                         Q1 2009     Q1 2008
    -------------------------------------------------------------------------
    Facilities                                               71%         75%
    Heavy Oil                                                18%         16%
    Drill Site                                               11%          9%
    -------------------------------------------------------------------------

    Table 2: Western Revenue and Western Net Margin
    http://files.newswire.ca/788/2009_Q1_Graphs.pdf

    The following table compares Western's results for the periods indicated:

    -------------------------------------------------------------------------
    ($000s)                                  Q1 2009     Q1 2008    % Change
    -------------------------------------------------------------------------
    Revenue - external                        65,970      93,973         (30)
    Revenue - internal                           156         301         (48)
    Operating costs                           46,376      58,936         (21)
    Amortization and accretion                 6,319       5,661          12
    -------------------------------------------------------------------------
    Net margin                                13,431      29,677         (55)
    -------------------------------------------------------------------------
    Net margin as % of revenue                   20%         32%         (38)
    -------------------------------------------------------------------------
    Maintenance capital                        1,330       1,060          25
    -------------------------------------------------------------------------
    Growth capital(1)                          1,264       6,363         (80)
    -------------------------------------------------------------------------
    Assets employed(2)                       431,311     399,319           8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Growth capital does not include acquisitions.
    (2) "Assets employed" is provided to assist management and investors in
        determining the effectiveness of the use of the assets at a
        divisional level. Assets employed is the sum of capital assets,
        intangible assets, and goodwill allocated to each division.
    

    Our markets experienced weakness in demand in Q1 2009, especially within
the first half of the quarter, combined with reduced crude oil pricing.
Oilfield waste volumes were down 14%, as compared to the prior year, with a
26% decline at Facilities and flat Heavy Oil volumes. Customers reduced
expenditures as projects were postponed and waste shipments were delayed. In
addition, well completions in March were delayed to take advantage of the
April 1, 2009 Alberta Government royalty rebate.
    In Q1 2009, crude oil sales and waste volumes accounted for approximately
two-thirds of the margin decline compared to Q1 2008. Recovered crude oil
volumes remained relatively flat in Q1 2009 at 108,000 bbls. Our crude oil
price received declined 50% from the prior year. In addition, off spec
production processed by us for our SAGD customers was down. As a result, crude
oil sales to our account declined approximately $8 million, year over year.
Drill site equipment-in-use was down in both Canada and the U.S., with
utilization dropping from 48% in Q1 2008 to 31% in Q1 2009.
    Consistent with corporate initiatives, the Division's operating costs
were reduced and approximately 15% of positions, primarily in Facilities and
Drill Site, were eliminated by the end of Q1 2009. These actions, combined
with improved crude oil pricing and new Heavy Oil projects that are
anticipated to come on-line in Q2, will positively impact performance in Q2.

    
    Facilities

    The Facilities business unit is integral to our operations, providing the
operational expertise and management capacity to support key business
initiatives. Facilities revenue is primarily generated from:
        -  the processing and disposal of industrial and oilfield-generated
           wastes, including collection, treatment, water disposal, clean oil
           terminalling, custom treating, and landfilling
        -  sale of recovered crude oil for our account
        -  oil recycling, including the collection and processing of waste
           lube oils and the sale of finished products
        -  onsite service in western Canada, excluding services provided by
           Heavy Oil
        -  environmental services comprised of environmental projects and
           drilling waste management services
    

    With the temporary weakness in our markets, Facilities performance was
down. Revenue fell 34% from Q1 2008 driven primarily by the 50% year-over-year
change in recovered crude oil prices, and the fall in waste processing and
water disposal volumes, down 26% and 16%, respectively. The remainder of the
business unit revenue was also down in the quarter. However, base oil sales,
which had an extremely weak start to the year, recovered to normal volumes in
the last half of the quarter. Similarly, crude oil prices increased 45% in the
last month of the quarter versus the first month of the quarter.

    
    -------------------------------------------------------------------------
                                             Q1 2009     Q1 2008    % change
    -------------------------------------------------------------------------
    Waste processing volumes ('000 m(3))         100         135         (26)
    Recovered crude oil ('000 bbl)(1)             56          65         (14)
    Average crude oil price
     received (CDN$/bbl)                       44.90       89.70         (50)
    Recovered oil sales ($ millions)             2.5         5.8         (57)
    Edmonton par price (CDN$/bbl)(2)           49.36       96.61         (49)
    -------------------------------------------------------------------------
    (1) Represents the total crude oil recovered and sold for our account.
    (2) Edmonton par is an industry benchmark for conventional crude oil.
        The average trailing twelve month price we received for recovered
        crude oil has averaged between 89% and 92% of Edmonton Par


    Table 3: Facilities - Waste processing volumes
    http://files.newswire.ca/788/2009_Q1_Graphs.pdf


    Table 4: Facilities - Recovered crude oil
    http://files.newswire.ca/788/2009_Q1_Graphs.pdf
    

    Heavy Oil

    Newalta's heavy oil services business began 15 years ago with facilities
at Hughenden and Elk Point, Alberta. Using the centrifugation experience
gained at processing heavy oil waste streams, Newalta launched a new onsite
service for customers in the heavy oil market. This business has evolved from
managing heavy oil in Newalta's facility network to operating equipment on
customers' sites. Leveraging our facilities as staging areas, Newalta delivers
a broad range of specialized services at numerous customer sites under short
and long-term arrangements.
    Heavy Oil business unit revenue is generated from three main areas:
    
        -  specialized onsite services under short and long-term arrangements
        -  processing and disposal of oilfield-generated wastes, including
           water disposal, and landfilling
        -  sale of recovered crude oil for our account
    

    Apart from the decline in crude oil prices, Heavy Oil experienced
reasonably strong performance. Recovered crude oil volumes increased 21% but
price declined 45%. Waste processing volumes were flat year over year. As a
result, revenue fell 20% from Q1 2008.
    We continue to be successful in securing new onsite projects. In April,
we commissioned a new long-term contract, and we are negotiating our first ten
year agreement. Fees received for onsite services are generally based on
processing volumes and are not directly susceptible to fluctuations in crude
oil pricing.

    
    -------------------------------------------------------------------------
                                             Q1 2009     Q1 2008    % change
    -------------------------------------------------------------------------
    Waste processing volumes ('000 m(3))         127         130          (2)
    Recovered crude oil ('000 bbl)(1)             52          43          21
    Average crude oil price
     received (CDN$/bbl)                       36.43       68.69         (47)
    Recovered oil sales ($ millions)             1.9         3.0         (37)
    Bow River Hardisty (CDN$/bbl)(2)           45.41       76.66         (41)
    -------------------------------------------------------------------------
    (1) Represents the total crude oil recovered and sold for our account.
    (2) Bow River Hardisty is an industry benchmark for heavy crude oil. The
        average trailing twelve month price we received for recovered crude
        oil has averaged between 93% and 96% of Bow River Hardisty.


    Table 5: Heavy Oil - Waste processing volumes
    http://files.newswire.ca/788/2009_Q1_Graphs.pdf


    Table 6: Heavy Oil - Recovered crude oil
    http://files.newswire.ca/788/2009_Q1_Graphs.pdf
    

    Drill Site

    Our Drill Site strategy is to develop a fully integrated service offering
in the U.S. including fixed facility waste processing as well as onsite and
drill site services that are similar to Newalta's western Canadian business.
Although Newalta's current market share is very small, we expect to continue
to expand services and establish operations in these markets through steady
organic development.
    Drill Site business unit revenue is presently generated primarily from
the supply and operation of drill site processing equipment, including
equipment for solids control and drill cuttings management. Currently, Drill
Site delivers 11% of divisional revenue or 6% of consolidated revenue.
    In both the U.S. and Canada, drilling fell significantly in March due
primarily to reduced activity from low natural gas prices. As a result,
revenue in Q1 2009 fell by 12% as compared to the prior year. Our
equipment-in-use fell from 67 to 52 units in Q1 2009, with the U.S. operations
representing approximately 60% of the decline.

    
    The table below reflects the changes in average drill site equipment-in-
    use and utilization:

    -------------------------------------------------------------------------
                                             Q1 2009     Q1 2008    % change
    -------------------------------------------------------------------------
    Average equipment-in-use(1)
      Canada                                      31          37         (16)
      U.S.                                        21          30         (30)
    -------------------------------------------------------------------------
                                                  52          67         (22)
    -------------------------------------------------------------------------
    Average equipment available                  170         141          20
    -------------------------------------------------------------------------
    Utilization                                  31%         48%         (33)
    -------------------------------------------------------------------------
    (1) "Average equipment in use" is calculated by taking the product of the
        total amount of average processing equipment and the utilization rate
        for the period. Average equipment available is adjusted by 10% for
        maintenance and transportation. Maximum utilization of 100%
        represents 90% of the total number of processing days.

    Table 7 - Drill Site
    http://files.newswire.ca/788/2009_Q1_Graphs.pdf
    

    RESULTS OF OPERATIONS - EASTERN DIVISION

    Overview

    Eastern provides industrial waste management, recycling and other
environmental services to markets located in eastern Canada through its
integrated network of over 30 facilities with more than 715 employees. This
network has two business units, Québec/Atlantic and Ontario, and features
Canada's largest lead-acid battery recycling facility with two long body
kilns, located in Ville Ste-Catherine, Québec ("VSC") with a combined annual
capacity of approximately 80,000MT. The network also includes an engineered
non-hazardous solid waste landfill located in Stoney Creek, Ontario ("SCL")
with an annual permitted capacity of 750,000MT of waste per year and, based on
current volumes, has an estimated remaining life of 10 years. The business
units contributed the following to division revenue:

    
    -------------------------------------------------------------------------
                                                         Q1 2009     Q1 2008
    -------------------------------------------------------------------------
    Québec/Atlantic                                          74%         70%
    Ontario                                                  26%         30%
    -------------------------------------------------------------------------

    Eastern's performance is affected by the following factors:
        -  fluctuations in the LME trading price of lead
        -  supply and demand in the North American battery manufacturing
           industry
        -  fluctuation in the U.S./Canadian dollar exchange rate
        -  market conditions in eastern Canada and bordering U.S. states,
           including: automotive, construction, forestry, manufacturing,
           mining, oil and gas, petrochemical, pulp and paper, refining,
           steel, and transportation service industries


    The following table compares Eastern's results for the periods indicated:

    -------------------------------------------------------------------------
    ($000s)                                  Q1 2009     Q1 2008    % Change
    -------------------------------------------------------------------------
    Revenue - external                        46,568      56,162         (17)
    Operating costs                           40,681      42,526          (4)
    Amortization and accretion                 3,289       3,810         (14)
    -------------------------------------------------------------------------
    Net margin                                 2,598       9,826         (74)
    -------------------------------------------------------------------------
    Net margin as % of revenue                    6%         17%         (65)
    -------------------------------------------------------------------------
    Maintenance capital                          717         161         345
    -------------------------------------------------------------------------
    Growth capital(1)                          3,398       6,106         (44)
    -------------------------------------------------------------------------
    Assets employed(2)                       352,399     328,857           7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Growth capital does not include acquisitions.
    (2) "Assets employed" is provided to assist management and investors in
        determining the effectiveness of the use of the assets at a
        divisional level. Assets employed is the sum of capital assets,
        intangible assets, and goodwill allocated to each division.

    Table 8: Eastern Revenue and Western Net Margin
    http://files.newswire.ca/788/2009_Q1_Graphs.pdf
    

    Eastern's weaker performance in Q1 2009 compared to Q1 2008 was largely
attributable to the 60% decline in LME lead prices. Improvements in
Québec/Atlantic, excluding VSC, substantially offset the decline in Ontario.
The impact of lower lead prices represented approximately 80% of the margin
decline in the east. Signs of a moderate recovery within the quarter were
evidenced by improved LME lead pricing throughout the quarter and a steady
recovery in activity levels in Ontario during the last half of the quarter.
    Consistent with corporate initiatives, the Division's operating costs
were reduced and approximately 8% of positions, predominantly in Ontario, were
eliminated by the end of Q1 2009. These actions, combined with improving lead
prices, continued strength in Québec/Atlantic facilities, ongoing improvement
in event-based Ontario landfill tonnages, and increased onsite projects,
should positively impact performance in Q2.

    
    Québec/Atlantic

    The Québec/Atlantic Canada business unit revenue is derived from:
        -  VSC, a lead-acid battery recycling facility in Québec
        -  waste treatment and transfer fixed facilities that process,
           consolidate, and bulk hazardous waste
        -  onsite services, including a fleet of specialized vehicles and
           equipment for waste transport and onsite processing
    

    Overall, the decline in revenue was due primarily to the weak average LME
price for lead. Excluding VSC, the Québec/Atlantic facilities and onsite
services delivered improved performance in Q1 compared to the same period in
2008 despite a weaker economic environment.
    LME lead prices for the quarter were 60% lower than in Q1 2008. Excluding
lead tonnage produced by Kiln 2, lead tonnage sold increased 6%, to 11,300 MT.
During the commissioning process of Kiln 2, we capitalized the costs, net of
any revenue. The split between direct sales and tolling was 71% direct sales
and 29% tolling in Q1 2009. Kiln 1 operated 82 days out of 90 available days,
with eight days of scheduled maintenance at the beginning of January.
    Commissioning of Kiln 2 is anticipated to be completed early in the
second half of the year. Utilization of Kiln 2 will be dependant on the
availability of feedstock, stable LME pricing at or above current levels, and
solid demand for finished product.

    
    The table below highlights the lead sold in 2009 and the percentage by
    weight of direct sales and tolling.

    -------------------------------------------------------------------------
                                             Q1 2009     Q1 2008    % change
    -------------------------------------------------------------------------
    Lead sold ('000 MT)(1)                      13.9        10.7          30
    % of lead by weight
      Direct                                      71          67           6
      Tolling                                     29          33         (12)
    -------------------------------------------------------------------------
    Average price - direct sales ($/MT)(2)     1,515       3,014         (50)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average lagged LME price (U.S.$/MT)(3)     1,157       2,899         (60)
    -------------------------------------------------------------------------
    (1) Q1 2009 includes 2,600 MT sold to the LME that relates to production
        during the commissioning phase of Kiln 2.
    (2) Average price received means all direct sales of finished products,
        including finished products that are alloyed to customer
        specifications.
    (3) Average LME price is based on a one-month lag consistent with our
        pricing structure.

    We continue to aggressively pursue onsite project work and have been
successful at securing new business. Onsite projects secured to date for 2009
are equal to the work completed in all of 2008.

    Ontario

    The Ontario business unit revenue is derived from:
        -  SCL, an engineered non-hazardous solid waste landfill
        -  waste treatment and transfer fixed facilities that process,
           consolidate, and bulk hazardous waste
        -  onsite services, including a fleet of specialized vehicles and
           equipment for emergency response, waste transport, and onsite
           processing
    

    Ontario activity fell along with the Ontario economy. While pricing
remained flat in Q1 2009, revenue dropped 28% due to declining volumes.
Tonnage at SCL fell 35% in Q1 2009. However, tonnage received in March
recovered significantly, with more than half of the quarter's tonnage
landfilled during the month. Tonnage at Ontario facilities was down only 13%.
    We are continuing to aggressively pursue a number of event-based projects
for SCL as well as a number of onsite projects that are anticipated to
contribute to performance in Q2.

    
    -------------------------------------------------------------------------
                                             Q1 2009     Q1 2008    % change
    -------------------------------------------------------------------------
    Landfill waste ('000 MT)                    77.0       119.2         (35)
    -------------------------------------------------------------------------

    Table 9: Ontario - Volume of waste collected
    http://files.newswire.ca/788/2009_Q1_Graphs.pdf

    CORPORATE AND OTHER

    -------------------------------------------------------------------------
    ($000s)                                  Q1 2009     Q1 2008    % Change
    -------------------------------------------------------------------------
    Selling, general and
     administrative expenses                  13,607      14,835          (8)
      as a % of revenue                        12.1%        9.9%          22
    Amortization and accretion                12,812      11,372          13
      as a % of revenue                        11.4%        7.6%          50
    -------------------------------------------------------------------------
    

    Selling, general and administrative expenses were down 8%, to $13.6
million, due primarily to the cost containment program. We eliminated over 50
positions from SG&A to balance resources with current business activity and
growth capital investments. As a result of these actions, normalized quarterly
SG&A expense run rate is anticipated to be approximately $13.0 million for the
remainder of the year, netting a 15% reduction in our full year SG&A from
2008.
    Amortization and accretion in Q1 2009 increased primarily due to the
growth in our capital asset base from our 2008 capital expenditure program.
The net loss on the disposal of assets for the quarter was $0.7 million and
was netted against amortization and accretion.

    
    -------------------------------------------------------------------------
    ($000s)                                  Q1 2009     Q1 2008    % Change
    -------------------------------------------------------------------------
    Bank fees and interest                     3,264       3,948         (17)
    Convertible debentures interest and
     accretion of issue costs                  2,316       2,318           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Finance charges                            5,580       6,266         (11)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The decrease in finance charges was primarily driven by lower interest
rates. Finance charges associated with the Debentures include an annual coupon
rate of 7%, the accretion of issue costs and discount on the debt portion of
the debentures. See "Liquidity and Capital Resources" in this MD&A for
discussion of our long-term borrowings.

    -------------------------------------------------------------------------
    ($000s)                                  Q1 2009     Q1 2008    % Change
    -------------------------------------------------------------------------
    Current tax                                  195         236         (17)
    Future income tax                         (2,176)     (2,998)         27
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Provision for (recovery of) income taxes  (1,981)     (2,762)         28
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Current tax expense for Q1 2009 was $0.2 million, similar to Q1 2008. We
had a future income tax recovery of $2.2 million, compared to a future income
tax recovery of $3.0 million in 2008. While the trust structure was in place,
Newalta generated approximately $150 million of tax loss carryforwards. Other
than provincial capital taxes and U.S. state and federal income taxes, we do
not anticipate paying any cash taxes for at least three years.
    See "Critical Accounting Estimates - Income Taxes" in this MD&A for
further discussion on the impact of the Conversion.

    LIQUIDITY AND CAPITAL RE

SOURCES The term liquidity refers to the speed with which a company's assets can be converted into cash, as well as cash on hand. Our liquidity risk may arise from general day-to-day cash requirements, and in the management of our assets, liabilities and capital resources. Liquidity risk is managed against our financial leverage to meet obligations and commitments in a balanced manner. Our debt capital structure is as follows: ------------------------------------------------------------------------- ($000s) March 31, December 31, 2009 2008 ------------------------------------------------------------------------- Use of credit facility: Senior long-term debt(1) 260,039 264,687 Letters of credit 48,439 49,249 ------------------------------------------------------------------------- Funded senior debt A 308,478 313,936 Unused credit facility capacity 66,522 111,064 ------------------------------------------------------------------------- Debentures B 115,000 115,000 ------------------------------------------------------------------------- Total Debt equals A+B 423,478 428,936 ------------------------------------------------------------------------- (1) Senior long-term debt is presented in this table gross of issue costs. Issue costs were $1.1 million in Q1 2009 and $1.4 million in Q4 2008. Despite the year over year decline in EBITDA, the impact of improved working capital, reduced cash distributions, and reduced capital expenditures resulted in a $4.3 million decrease in our senior long-term debt as compared to December 31, 2008. Our working capital at March 31, 2009 was $32.4 million compared with $40.0 million at December 31, 2008 and $100.4 million at March 31, 2008. This improvement highlights the degree of progress over the last 12 months by addressing the following key areas: - business process initiatives to improve the timeliness and accuracy of invoices - improved collection processes - strengthened credit risk management As a result of these initiatives, notwithstanding a more challenging economic environment, days' sales outstanding in receivables were reduced by an additional 4 days since year end, building upon a 10 day improvement at December 31, 2008 over the previous year. In addition, over 90 day accounts were reduced by $2.4 million. Days' sales outstanding in payables were also managed in order to better align payment terms with the market. At current activity levels, working capital of $32.4 million is expected to be sufficient to meet our ongoing commitments and operational requirements of the business. Management will continue to aggressively manage working capital in order to protect and build upon improvements made over the last 12 months. The Current Ratio is defined as the ratio of total current assets to total current liabilities. As a result of the ongoing process improvements in the management and collection of receivables, and management and payment of payables, this ratio remained relatively flat to the end of the prior year, 1.36 times at March 31, 2009 as compared to 1.34 times at December 31, 2008. The current ratio was 2.09 times at March 31, 2008, again highlighting the magnitude of the improvement between periods. This ratio, at March 31, 2009, exceeds our bank covenant minimum requirement of 1.10:1.

SOURCES OF CASH Our liquidity needs can be sourced in several ways including: funds from operations, borrowings against our credit facility, proceeds from the sale of assets, and the issuance of securities from treasury. Credit Facility The Credit Facility is available to fund growth capital expenditures and for general corporate purposes as well as to provide letters of credit to third parties for financial security up to a maximum amount of $60.0 million. The aggregate dollar amount of outstanding letters of credit is not categorized in the financial statements as long-term debt; however, the issued letters of credit reduce the amount available under the Credit Facility and are included in the definition of funded debt for covenant purposes. On April 22, 2009, in order to provide additional flexibility to manage our business during these difficult market conditions, we amended the terms of our Credit Facility with our Canadian lending syndicate. The primary change was an increase of the funded debt to EBITDA covenant restriction from 3.00:1 to 3.50:1 for all of 2009. Other amendments negotiated will provide greater flexibility to manage working capital, issue performance bonds, and absorb restructuring costs without impacting EBITDA within the definition of funded debt. Additional detail on the changes made to the current ratio and treatment of performance bonds is noted below: - Our current ratio covenant restriction has been reduced from 1.20:1 to 1.10:1. This change acknowledges the gains management has made to date in managing its cash processes. Because there is no current portion to the revolving credit line, reductions to bank debt do not improve the current ratio but rather will reduce the ratio. The revised covenant will enable management more room to optimize its current ratio through ongoing process improvements. - Surety bonds (including performance and bid bonds) under the credit facility are excluded from the definition of funded debt. The aggregate amount of surety bonds is limited to $125 million. Management has identified new business opportunities from the various infrastructure spending programs that may arise from government stimulus spending. Such programs will typically require performance bonds and, as a result, the new amendment will allow management greater flexibility to participate in such new projects. Management elected to reduce the principal amount of the Credit Facility from $425 million to $375 million, leaving unused capacity of $66.5 million at the end of the first quarter. Consistent with our cost containment program, this reduction in capacity will reduce our bank fees. The maturity date remains October 12, 2010. Included within our funded senior debt are letters of credit in the amount of $48.4 million ($49.2 million at December 31, 2008, and $40.1 million at March 31, 2008) which have been provided as security to third parties, including environmental regulatory authorities to satisfy asset retirement obligations. Financial performance relative to the financial ratio covenants(1) under the Credit Facility is reflected in the table below: ------------------------------------------------------------------------- March 31, 2009 Threshold ------------------------------------------------------------------------- Current Ratio(2) 1.36 1.10:1 minimum Funded Debt(3) to EBITDA(4) 2.88 3.50:1 maximum Fixed Charge Coverage(5) 1.13 1.00:1 minimum ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) We are restricted from declaring dividends if we are in breach of the covenants under our Credit Facility. (2) Current Ratio means, the ratio of consolidated current assets to consolidated net current liabilities (excluding the current portion of long-term debt and capital leases outstanding, if any). (3) Funded debt is a non-GAAP measure, the closest measure of which is long-term debt. Funded debt is calculated by adding the senior long- term debt to the amount of letters of credit outstanding at the reporting date. (4) Funded Debt to EBITDA means the ratio of consolidated Funded Debt to the aggregate EBITDA for the trailing twelve-months. Funded Debt is generally defined as long-term debt and capital leases including any current portion thereof but excluding future income taxes and future site restoration costs. EBITDA is defined as the trailing twelve- months of EBITDA for Newalta Inc. which is normalized for any acquisitions completed during that time frame and excluding any dispositions incurred as if they had occurred at the beginning of the trailing twelve-months. Funded debt to EBITDA will remain at 3.50:1 for the remainder of 2009. The ratio will revert to 3.00:1 in 2010. (5) Fixed Charge Coverage Ratio means, based on the trailing twelve month period, EBITDA less unfinanced capital expenditures and cash taxes to the sum of the aggregate of principal payments (including amounts under capital leases, if any), interest (excluding accretion for the convertible debentures), dividends paid for such period, other than cash payments in respect of a dividend reinvestment plan, if any. Unlike the Funded Debt to EBITDA ratio, the Fixed Charge Coverage ratio trailing twelve month EBITDA is not normalized for acquisitions or dispositions. As at March 31, 2009, our funded senior debt was $308.5 million resulting in unused capacity of $66.5 million on our Credit Facility and a funded debt to EBITDA ratio of 2.88:1. Management continues to focus on reducing funded senior debt through the following initiatives: - reduction in the amount of outstanding letters of credit - continued improvement in the management of working capital - restricted capital spending in 2009 - reduced expenses with the implementation of our cost control program, including: staff reductions, hiring restrictions, postponement of salary increases and restrictions on travel and discretionary expenses, and the suspension of our matching contributions to the EPSP - sale of redundant, idle, or non-core assets The actions we have undertaken positively impacted our funded debt position at the end of Q1 2009, and we anticipate a continued positive impact throughout 2009, better positioning Newalta within this challenging economic environment. Management anticipates these actions will strengthen our balance sheet and better position us to capitalize on opportunities as the economy recovers. Management remains confident that we will be able to manage within our covenants for 2009 and 2010. At March 31, 2009, we have $48.4 million of outstanding letters of credit issued to various environmental regulatory authorities of which $34.1 million have been issued in connection with our operations in Alberta. We have been participating with industry and regulatory authorities over the past several years in connection with changing the security requirements for permitted oilfield waste facilities in Alberta. The Alberta Energy Resources Conservation Board (ERCB) is awaiting approval of amendments to the Alberta Energy Statutes Amendment Act that will allow it to implement the Oilfield Waste Liability (OWL) Program. The OWL Program will replace the current fully funded liability management program for oilfield waste facilities with a facility specific asset to liability risk based assessment that is backed by the existing upstream oil and gas industry liability management program. If enacted in its present form, we anticipate that outstanding letters of credit in the amount of approximately $29 million will be returned to us in 2009 with no additional security required to be posted. There can be no assurance that the draft legislation will be enacted in its proposed form or at all and the timing related thereto. In addition, there can be no assurance as to the timing of the enactment of the draft legislation or the respective timing of the release of our letters of credit. Debentures The Debentures have a maturity date of November 30, 2012 and bear interest at a rate of 7.0% payable semi-annually in arrears on May 31 and November 30 each year beginning May 31, 2008. Each $1,000 debenture is convertible into 43.4783 shares, at a conversion price of $23.00 per share, at any time at the option of the holders of the Debentures. The Debentures are not included in calculating financial covenants in the Credit Facility. There have been no redemptions of the Debentures in Q1 2009. USES OF CASH Our primary uses of funds include maintenance and growth capital expenditures as well as acquisitions, payment of distributions, and operating and SG&A expenses. Capital Expenditures "Growth capital expenditures" or "growth and acquisition capital expenditures" are capital expenditures that are intended to improve Newalta's efficiency and productivity, allow Newalta to access new markets, and diversify its business. Growth capital or growth and acquisition capital are reported separately from maintenance capital by management because these types of expenditures are discretionary. "Maintenance capital expenditures" are capital expenditures to replace and maintain depreciable assets at current service levels. Maintenance capital expenditures are reported separately from growth activity by management because these types of expenditures are not discretionary and are required to maintain current operating levels. Capital expenditures for Q1 2009 and Q1 2008 were: ------------------------------------------------------------------------- ($000s) Q1 2009 Q1 2008 ------------------------------------------------------------------------- Growth capital expenditures(1) 6,069 16,724 Maintenance capital expenditures 2,046 1,249 ------------------------------------------------------------------------- Total capital expenditures(2) 8,115 17,973 ------------------------------------------------------------------------- (1) Acquisitions in Q1 2008 and Q1 2009 were nil. (2) The numbers in this table differ from the consolidated statement of cash flows because the numbers above do not reflect the net change in working capital related to acquisitions. Total capital expenditures for the quarter were $8.1 million. Growth capital expenditures of $6.1 million were primarily used to complete projects that were underway at the end of 2008. Growth capital expenditures in Q1 2009 were funded by funds from operations and working capital. Maintenance capital increased $0.8 million, to $2.0 million. Management has restricted capital expenditures in 2009 to $40 million, comprised of $25 million for growth capital and $15 million for maintenance capital. As we continue to be successful in securing new onsite project work across Canada, including heavy oil/SAGD, we expect that a portion of the $25 million in growth capital expenditures will be used to fund these projects in the second half of the year. This compares to an initial 2009 capital budget of $75 million for growth capital and $28 million for maintenance capital and to a total capital spend in 2008 of $127 million. These investments will be funded entirely from funds from operations. Dividends and Share Capital In determining the dividend to be paid to our shareholders, the Board of Directors considers a number of factors including the forecasts for operating and financial results, maintenance and growth capital requirements as well as market activity and conditions. After review of all factors, the Board declared a dividend of $0.05 per share, paid April 15 to shareholders of record as at March 31, 2009. The Board will continue to review future dividends, taking into account all factors noted above. As at May 11, 2009, Newalta had 42,498,860 shares outstanding, outstanding options to purchase up to 2,830,200 shares and a number of shares that may be issuable pursuant to the $115.0 million in Debentures (see Sources of Cash - Debentures). On March 31, 2009, certain officers and directors of Newalta Inc. subscribed for 93,766 shares at a price of $2.65 per share for gross proceeds of $248,480. On April 1, 2009, an additional director subscribed for 4,622 shares at a price of $2.65 per share for gross proceeds of $12,248. Contractual Obligations For the three months ended March 31, 2009, there have been no significant changes in our contractual obligations. For a summary of our contractual obligations, see page 28 of the MD&A for the year ended December 31, 2008. SUMMARY OF QUARTERLY RESULTS ($000s except per 2009 2008 share/unit data) --------------------------------------------- Q1 Q4 Q3 Q2 Q1 ------------------------------------------------------------------------- Revenue 112,538 145,341 158,579 142,939 150,176 Earnings (loss) before taxes (6,362) 5,616 19,041 9,293 16,542 Net earnings (loss) (4,381) 9,085 18,717 11,776 19,304 Earnings (loss) per share/unit ($) (0.10) 0.21 0.44 0.28 0.47 Diluted earnings (loss) per share/unit ($) (0.10) 0.21 0.44 0.28 0.46 Weighted average share/units - basic 42,402 42,266 42,102 41,822 41,543 Weighted average share/units - diluted 42,402 42,266 42,111 41,950 41,635 EBITDA 12,030 27,600 37,441 26,573 34,139 ------------------------------------------------------------------------- ($000s except per 2007 share/unit data) --------------------------- Q4 Q3 Q2 ------------------------------------------------------- Revenue 137,075 133,358 111,594 Earnings (loss) before taxes 7,784 14,524 3,799 Net earnings (loss) 23,613 17,893 6,716 Earnings (loss) per share/unit ($) 0.57 0.44 0.17 Diluted earnings (loss) per share/unit ($) 0.54 0.43 0.16 Weighted average share/units - basic 41,191 40,579 40,361 Weighted average share/units - diluted 43,779 40,725 40,562 EBITDA 26,457 28,980 15,511 ------------------------------------------------------- Quarterly performance is affected by seasonal variation as described below. In 2007, acquisitions completed in eastern Canada in the second half of 2006 helped to partially offset the weak natural gas drilling environment in western Canada. Western endured a weak natural gas drilling environment during Q2 2007. This weakness was further compounded by the spring breakup road bans and an extended wet season preventing the transportation of waste from well workovers and therefore reducing processing volumes. This resulted in lower revenue, earnings and earnings before taxes. In Q3 2007, operations returned to seasonal levels but earnings before taxes remained lower when compared to the same period in 2006, as a result of the continued weakness in the western Canadian natural gas drilling market. Earnings before taxes in Q4 2007 was lower than Q3 2007 due to a $2 million loss on the disposal of leasehold improvements associated with the early termination of office space leases as well as increased SG&A and interest expense incurred in anticipation of growth. Net earnings in Q4 2007 improved over Q3 2007 attributable to a future income tax recovery due to a reduction in the estimated future income tax rate. In 2008, the increase in revenue, earnings before taxes, and net earnings compared to the first three quarters of 2008 were mainly due to full quarter contributions from acquisitions in each quarter as well as higher crude oil and lead revenue, driven both by increases in volume and commodity prices. Natural gas drilling remained at near 2007 levels in 2008. In Q4 2008, commodity prices declined significantly, negatively impacting revenue and margin in both divisions. In 2009, the decrease in revenue, earnings before taxes, and net earning as compared to prior period was mainly due to weakening economic conditions experienced in Q1 2009. Lead and crude oil prices fell from historic highs achieved in 2008, continuing the negative impact on revenue and margin from Q4 2008. From Q2 2007 to Q4 2008, the increase in the weighted average number of shares/trust units is related to the former DRIP program of the Newalta Income Fund. As a part of the conversion to a corporation on December 31, 2008, Newalta eliminated the DRIP program in January 2009. Seasonality of Operations Quarterly performance is affected by, among other things, weather conditions, commodity prices, foreign exchange, market demand and the timing of our growth capital investments as well as acquisitions and the contributions from those investments. Acquisitions and growth capital investments completed in the first half of the year will tend to strengthen the second half financial performance. In 2009, the volatility of commodity prices combined with the impact of management's cost cutting initiatives may have an effect on seasonality of combined divisional net margin and EBITDA. For Western, the frozen ground during the winter months in western Canada provides an optimal environment for drilling activities and consequently, the first quarter is typically strong. As warm weather returns in the spring, the winter's frost comes out of the ground rendering many secondary roads incapable of supporting the weight of heavy equipment until the roads have thoroughly dried out. Road bans, which are generally imposed in the spring, restrict waste transportation which reduces demand for the Western Division's services and therefore, the second quarter is generally the weakest quarter of the year for Western. The third quarter is typically the strongest quarter for Western due to favourable weather conditions and market cyclicality. The expansion into the U.S. is anticipated to somewhat reduce the impact that weather conditions have on drilling related activities as the areas in the U.S. in which we operate are not affected by frozen ground requirements for winter drilling nor are they impacted by the spring thaw. For Western, over the past two years, quarterly revenue as a percentage of annual Western revenue was: 26% for the first quarter, 23% for the second quarter, 27% for the third quarter, and the fourth quarter was 24%. Eastern's services are generally curtailed by colder weather in the first quarter, which is typically its weakest quarter as aqueous wastes and onsite work are restricted by colder temperatures. The third quarter is typically the strongest for Eastern due to the more favourable weather conditions and market cyclicality. The addition of VSC to Eastern has reduced the significance of this variability, as the demand for recycled lead is not generally affected by seasonality. Eastern's quarterly revenue as a percentage of annual Eastern revenue has not been affected by the trends discussed above due to the effect of acquisitions. Based on the last two years of operations, including historical information acquired by management for acquisitions completed in 2007, we estimate that quarterly revenue as a percentage of annual revenue for Eastern would have approximately been: 23% in the first quarter, 25% in the second quarter, 25% in the third quarter and 27% in the fourth quarter. OFF-BALANCE SHEET ARRANGEMENTS We currently do not have any off-balance sheet arrangements. SENSITIVITIES Our revenue is sensitive to changes in commodity prices for crude oil, base oils, and lead. These factors have both a direct and indirect impact on our business. The direct impact of these commodity prices is reflected in the revenue received from the sale of products such as crude oil, base oils and lead. The indirect impact is the effect that the variation of these factors, including natural gas, has on activity levels of our customers and, therefore, demand for our services. The indirect impact of these fluctuations previously discussed are not quantifiable. We do not see any significant variation to the sensitivities provided in the MD&A for the year ended December 31, 2008. CRITICAL ACCOUNTING ESTIMATES The preparation of the financial statements in accordance with GAAP requires management to make estimates with regard to the reported amounts of revenue and expenses and the carrying values of assets and liabilities. These estimates are based on historical experience and other factors determined by management. Because this involves varying degrees of judgment and uncertainty, the amounts currently reported in the financial statements could, in the future, prove to be inaccurate. Amortization and Accretion Amortization of capital assets and intangible assets incorporates estimates of useful lives and residual values. These estimates may change as more experience is obtained or as general market conditions change impacting the operation of plant and equipment. Accretion expense is the increase in the asset retirement obligation over time. The asset retirement obligation is based on estimates that may change as more experience is obtained or as general market conditions change impacting the future cost of abandoning Newalta's facilities. Amortization of capital assets and intangible assets incorporates estimates of useful lives and residual values. These estimates may change as more experience is obtained or as general market conditions change impacting the operating of plant and equipment. Estimates for the three months ended March 31, 2009 are consistent with those disclosed in the MD&A for the year ended December 31, 2008. Asset Retirement Obligations Asset retirement obligations are estimated by management based on the anticipated costs to abandon and reclaim all Newalta facilities, landfills and the projected timing of the costs to be incurred in future periods. Management, in consultation with Newalta's engineers, estimates these costs based on current regulations, costs, technology, and industry standards. The fair value estimate is capitalized as part of the cost of the related asset and amortized to expense over the asset's useful life. There were no significant changes in the estimates used to prepare the asset retirement obligation in 2009 compared to those provided in Newalta's annual consolidated financial statements for the year ended March 31, 2008. Goodwill Management performs a test for goodwill impairment annually and whenever events or circumstances make it possible that impairment may have occurred. Determining whether impairment has occurred requires a valuation of the respective reporting unit, based on its future discounted cash flows. In applying this methodology, management relies on a number of factors, including actual operating results, future business plans, economic projections and market data. Management tests the valuation of goodwill as at September 30 and did not see any impairment in the goodwill balance recorded. In addition, management assesses the reasonableness of assumptions used for the September 30 valuation to determine if further impairment testing is required as at March 31. We determined that no further impairment testing was necessary as at March 31, 2009. However, in light of the current economic conditions, we undertook an additional review of assumptions used for the test of the valuation of goodwill and reconfirmed our assessment that there were no indicators of impairment. Income Taxes Current income tax expense represents capital taxes paid in Central and Eastern Canada by the Canadian subsidiaries and U.S. taxation imposed on the U.S. subsidiary. Future income taxes are estimated based on temporary differences between the book value and tax value of assets and liabilities using the applicable future income tax rates under current law. The change in these temporary differences results in a future income tax expense or recovery. The most significant risk in this estimate is the future income tax rate used for each entity based on provincial allocation calculations and the timing of reversal of temporary differences. Estimates for the three months ended March 31, 2009 are consistent with those disclosed in the MD&A for the year ended December 31, 2008. Stock-Based Compensation Newalta has three stock-based compensation plans: the incentive plan adopted on March 1, 2003 (the "2003 Plan"); the incentive plan adopted on May 18, 2006 (the "2006 Plan" and together with the 2003 Plan, the "Converted Incentive Plans"); and the incentive option plan adopted on December 31, 2008 (the "Option Plan" and together with the Converted Incentive Plans, the "Incentive Plans"). In connection with the Conversion, the Converted Incentive Plans were amended such that the holders of such rights now have the right to receive, upon vesting and the payment of the exercise price related thereto, common shares of Newalta Inc. instead of trust units of the Fund, on a one-for-one basis. No further option based awards will be granted under the Converted Incentive Plans. Under the Incentive Plans, we may grant options to acquire up to 10% of the issued and outstanding shares to directors, officers, employees and consultants of Newalta or any its affiliates. The 2003 Plan differs from the 2006 Plan and the Option Plan in the manner in which they may be settled by the grantee. The options under the 2003 Plan may only be settled in common shares, while the options under the 2006 Plan and Option Plan may be settled net in cash by the grantee. As such, options under the 2003 Plan are accounted for in accordance with the fair value recognition provisions of GAAP. Accordingly, stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as an expense over the vesting period. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating the expected term of the options (including the number of stock-based awards that are expected to be forfeited), the expected volatility of the underlying security and the expected dividends. The options granted under the 2006 Plan and the Option Plan are accounted for as stock appreciation rights since they may be subject to a net cash settlement provision. Accordingly, they are re-measured at each balance sheet date to reflect the net cash liability at that date. During Q1 2009, a total of 842,500 options were granted under the Option Plan at an exercise price of $5.31 per share. During Q1 2009, 894,675 options held by certain employees pursuant to the Converted Incentive Plans were surrendered for cancelation. New Accounting Standards in 2010 and Onward Our assessment of new accounting standards for 2010 and onward are consistent with those disclosed in the MD&A for the year ended December 31, 2008. 2011 Changeover to IFRS On March 11, 2008, the Accounting Standards Board of Canada ("AcSB") confirmed that effective January 1, 2011, International Financial Reporting Standards ("IFRS") will become Canadian GAAP for publicly accountable enterprises such as Newalta. At this time, the impact on our future consolidated balance sheets and statements of operations, comprehensive income and retained earnings are not reasonably determinable or estimable. We have commenced our IFRS project and have established a formal project governance structure with a target implementation date of January 1, 2011. The following table summarizes our key activities, related milestones, and our accomplishments to date. ------------------------------------------------------------------------- Status Status (as at (as at December 31, March 31, Key Activity Milestones 2008) 2009) ------------------------------------------------------------------------- Accounting Complete new Accounting Assessment policies: financial policy processes are Identification policies choices have ongoing, with of differences and procedures been significant between Canadian manual addressing identified and progress in the GAAP/IFRS IFRS requirements. the assessment areas identified - Accounting Key milestones of the financial in our high-level policy include: statement impact scoping review. choices - Opening is ongoing. under IFRS balances - Financial estimates statement - Q3 2009 impact - Testing phase - Opening - Q3/Q4 2009 balances - SAP parallel - Final run - Q4 2009 implementation - Finalize decisions opening - Financial balances policies - Q4 2009/ and procedures Q1 2010 ------------------------------------------------------------------------- Detailed policy Develop working Working groups Training in the assessment: groups and have been key impact areas Identification training to identified and is complete. of areas that implement changes are involved in Working groups may have a for significant the assessment continue to be significant impact items. of significant involved in the impact. Key milestones impact items. assessment of include: Training is significant impact - Develop and ongoing. items. implement training programs for working groups - Q1 2009 - Identify and recommend systemic process changes - Q2/Q3 2009 ------------------------------------------------------------------------- IT Ensure readiness Strategy for Analysis of issues Infrastructure: for parallel parallel is ongoing. Identify key processing of 2010 processing Parallel testing changes in the financial results completed. of the dual following and IFRS-compliant Analysis of reporting system areas: reporting in 2011 issues is has begun. - IT system - Q4 2009 ongoing. changes and upgrades - Systemic process changes for data collection for G/L, disclosures, and consolidation - One-time processes due to IFRS 1 ------------------------------------------------------------------------- Control Complete final Identifying and Assessment is environment: signoff and review documenting key ongoing. Internal control of accounting changes in over financial policy changes policy. reporting by Q4 2010 Working groups - Accounting Update are assessing policy certification the impact and changes and process developing the approval by Q4 2010 implementation - Changes to processes to be certification followed process operationally. ------------------------------------------------------------------------- Control Publish material Early assessment Early assessment environment: changes in ongoing. is ongoing. Disclosure policies and known Key stakeholder Key stakeholder controls and impacts of IFRS communications communications procedures throughout 2009 & will begin will begin late - MD&A 2010 MD&A's - Q2 2009. Q2 2009. communications starting Q2 - package 2009 - IFRS Publish adjustments impact of to Canadian conversion GAAP (with statements reconciliation to (2010) GAAP) on key - 2011 measures by financial Q1 2011. statement Publish presentation disclosure of 2010 comparative information (with reconciliation to GAAP) in the interim and annual financial statements - Q1 2011 ------------------------------------------------------------------------- Other Issues: Develop investor Early assessment Early assessment Address impacts relations ongoing. is still ongoing. to operations communication due to IFRS: plan by Q3 2009 - Investor Renegotiation of: relations - Financial - Financial covenants covenants - by Q2 - 2010 - Compensation - Compensation packages packages - by Q3 - 2010 ------------------------------------------------------------------------- BUSINESS RISKS The business of Newalta is subject to certain risks and uncertainties. Prior to making any investment decision regarding Newalta, investors should carefully consider, among other things, the risks described herein (including the risks and uncertainties listed in the first paragraph of this Management's Discussion and Analysis) and the risk factors set forth in the most recently filed Annual Information Form of Newalta which are incorporated by reference herein. FINANCIAL AND OTHER INSTRUMENTS The carrying values of accounts receivable and accounts payable approximate the fair value of these financial instruments due to their short term maturities. Newalta's credit risk from its customers is mitigated by its broad customer base and diverse product lines. In the normal course of operations, Newalta is exposed to movements in U.S. dollar exchange rates relative to the Canadian dollar. Newalta sells and purchases some products in U.S. dollars. Newalta does not utilize hedging instruments but rather chooses to be exposed to current U.S. exchange rates as increases or decreases in exchange rates are not considered to be significant over the period of the outstanding receivables and payables. The floating interest rate profile of Newalta's long-term debt exposes Newalta to interest rate risk. Newalta does not use hedging instruments to mitigate this risk. The carrying value of the long-term debt approximates fair value due to its floating interest rates. DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING During the three months ended March 31, 2009, Newalta did not make any changes in the internal controls and procedures relating to disclosure and financial reporting that have materially affected, or are reasonably likely to materially affect, Newalta's internal control over financial reporting. ADDITIONAL INFORMATION Additional information relating to Newalta, including the Annual Information Form, is available through the internet on the Canadian SEDAR which can be accessed at www.sedar.com. Copies of the Annual Information Form of Newalta may be obtained from Newalta Inc. on the internet at www.newalta.com, by mail at 211 - 11th Avenue S.W., Calgary, Alberta T2R 0C6, or by facsimile at (403) 806-7032. Consolidated Balance Sheets March December ($000s) (unaudited) 31, 2009 31, 2008 ------------------------------------------------------------------------- Assets Current assets Accounts receivable 88,521 120,884 Inventories 27,854 29,781 Prepaid expenses and other 5,209 6,546 ------------------------------------------------------------------------- 121,584 157,211 Note receivable 1,081 1,160 Capital assets 720,363 724,788 Intangible assets 63,483 64,003 Goodwill 103,597 103,597 Future tax asset 1,870 1,151 ------------------------------------------------------------------------- 1,011,978 1,051,910 ------------------------------------------------------------------------- Liabilities Current liabilities Accounts payable and accrued liabilities 87,068 109,698 Dividends/distributions payable 2,125 7,560 ------------------------------------------------------------------------- 89,193 117,258 Senior long-term debt (Note 3) 258,956 263,251 Convertible debentures - debt portion 109,757 109,419 Future income taxes 38,420 40,039 Asset retirement obligations (Note 4) 21,299 21,094 ------------------------------------------------------------------------- 517,625 551,061 ------------------------------------------------------------------------- Shareholders' Equity Shareholders' capital (Note 5) 509,617 509,369 Convertible debentures - equity portion 1,850 1,850 Contributed surplus 751 988 Retained earnings (deficit) (17,865) (11,358) ------------------------------------------------------------------------- 494,353 500,849 ------------------------------------------------------------------------- 1,011,978 1,051,910 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statements of Operations, Comprehensive Income and Retained Earnings (Deficit) For the Three Months Ended March 31, ($000s except per share/unit data) (unaudited) 2009 2008 ------------------------------------------------------------------------- Revenue 112,538 150,176 Expenses Operating (Note 14) 86,901 101,161 Selling, general and administrative (Note 14) 13,607 14,835 Finance charges 5,580 6,266 Amortization and accretion (Note 2) 12,812 11,372 ------------------------------------------------------------------------- 118,900 133,634 ------------------------------------------------------------------------- Earnings (loss) before taxes (6,362) 16,542 Provision for (recovery of) income taxes Current 195 236 Future (2,176) (2,998) ------------------------------------------------------------------------- (1,981) (2,762) ------------------------------------------------------------------------- Net earnings (loss) and comprehensive income (loss) (4,381) 19,304 Retained earnings (deficit), beginning of period (11,358) 22,940 Dividends/distributions (Note 9) (2,126) (23,077) ------------------------------------------------------------------------- Retained earnings (deficit), end of period (17,865) 19,167 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net earnings (loss) per share/unit (Note 8) (0.10) 0.47 ------------------------------------------------------------------------- Diluted earnings (loss) per share/unit (Note 8) (0.10) 0.46 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statements of Cash Flows For the Three Months Ended March 31, ($000s) (unaudited) 2009 2008 ------------------------------------------------------------------------- Net inflow (outflow) of cash related to the following activities: Operating Activities Net earnings (loss) (4,381) 19,304 Items not requiring cash: Amortization and accretion (Note 2) 12,812 11,372 Future income tax recovery (2,176) (2,998) Other 554 (511) ------------------------------------------------------------------------- Funds from Operations 6,809 27,167 Increase (decrease) in non-cash working capital (Note 12) 23,476 (17,810) Asset retirement expenditures incurred (243) (612) ------------------------------------------------------------------------- 30,042 8,745 ------------------------------------------------------------------------- Investing Activities Additions to capital assets (Note 12) (18,727) (25,157) Net proceeds on sale of capital assets 606 4,460 ------------------------------------------------------------------------- (18,121) (20,697) ------------------------------------------------------------------------- Financing Activities Issuance of shares/units 248 62 Issuance of convertible debentures - (66) Increase (decrease) in debt (4,688) 31,036 Decrease in note receivable 79 56 Distributions to unitholders (Note 9) (7,560) (19,136) ------------------------------------------------------------------------- (11,921) 11,952 ------------------------------------------------------------------------- Net cash flow - - Cash - beginning of period - - ------------------------------------------------------------------------- Cash - end of period - - ------------------------------------------------------------------------- Supplementary information: Interest paid 2,540 3,782 Income taxes paid - 196 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Notes to the Interim Consolidated Financial Statements For the three months ended March 31, 2009 and 2008 (all tabular data in $000s except per share and ratio data) (unaudited) Newalta Inc. was incorporated on October 29, 2008 pursuant to the laws of the Province of Alberta. Newalta Inc. is engaged, through its wholly owned operating subsidiary Newalta Corporation (the "Corporation", and together with Newalta Inc., collectively "Newalta"), in adapting technologies to maximize the value inherent in industrial waste through the recovery of saleable products and recycling. Newalta also provides environmentally sound disposal of solid, non-hazardous industrial waste. With an integrated network of facilities, Newalta provides waste management solutions to a broad customer base of national and international corporations in a range of industries, including automotive, construction, forestry, manufacturing, mining, oil and gas, petrochemical, pulp and paper, refining, steel and transportation services. As a result of changes in tax rules for specified investment flow-though entities, Newalta Income Fund (the "Fund") undertook steps to convert the Fund's income trust structure into a corporate structure. On December 17, 2008, unitholders of the Fund voted and approved the reorganization by way of a plan of arrangement under the Business Corporations Act (Alberta), into a corporation pursuant to an arrangement agreement dated November 12, 2008 (as amended) between Newalta Inc., Newalta Income Fund, Newalta Corporation, Newalta Industrial Services Inc. and Newalta Services Holdings Inc. (the "Arrangement"). On January 1, 2009, Newalta Corporation, Newalta Industrial Services Inc. and Newalta Services Holdings Inc. were amalgamated to form Newalta Corporation. Prior to the Arrangement on December 31, 2008, the consolidated financial statements included the accounts of the Fund and its subsidiaries. After giving effect to the Arrangement, the consolidated financial statements were prepared on a continuity of interests basis, which recognizes Newalta Inc. as the successor entity to the Fund. NOTE 1. BASIS OF PRESENTATION The interim consolidated financial statements include the accounts of Newalta. The interim consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles ("GAAP"). Certain information and disclosures normally required to be included in the notes to the audited annual financial statements have been omitted or condensed. These interim financial statements and the notes thereto should be read in conjunction with the consolidated financial statements of Newalta Inc. for the year ended December 31, 2008 as contained in the Annual Report for fiscal 2008. The accounting principles applied are consistent with those as set out in the annual financial statements of Newalta Inc. for the year ended December 31, 2008 except as noted in the following paragraph. Goodwill and Intangible Assets Effective January 1, 2009, Newalta adopted the Canadian Institute of Chartered Accountants ("CICA") new accounting standard, section 3064, Goodwill and Intangible Assets, replacing section 3062, Goodwill and Other Intangible Assets. The new Section establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The standards concerning goodwill are unchanged from the standards included in the previous section 3062. The adoption of this new section did not have a material impact on Newalta's interim financial statements. USE OF ESTIMATES AND ASSUMPTIONS Accounting measurements at interim dates inherently involve reliance on estimates and the results of operations for the interim periods shown in these financial statements are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the accompanying unaudited interim consolidated financial statements include all adjustments necessary to present fairly the consolidated results of Newalta Inc.'s operations and cash flows for the periods ended March 31, 2009 and 2008. NOTE 2. DISPOSAL OF CAPITAL ASSETS During the quarter, Newalta disposed of certain transport vehicles and building assets with a net book value of $1.3 million for proceeds of $0.6 million. The resulting net loss of $0.7 million is included in amortization and accretion in the consolidated statements of operations, comprehensive income and retained earnings. NOTE 3. SENIOR LONG-TERM DEBT ------------------------------------------------------------------------- March 31, December 31, 2009 2008 ------------------------------------------------------------------------- Amount drawn on credit facility 260,039 264,687 Issue costs (1,083) (1,436) ------------------------------------------------------------------------- Senior long-term debt 258,956 263,251 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The Credit Facility's maturity date is October 12, 2010. An extension of the Credit Facility may be granted at the option of the lenders. If an extension is not granted, the entire amount of the outstanding indebtedness would be due in full at the maturity date. The facility also requires Newalta to be in compliance with certain covenants. At March 31, 2009, Newalta was in compliance with all covenants. Subsequent to the end of the quarter and effective April 22, 2009, Newalta amended the terms of its Credit Facility. The primary changes were an increase of the funded debt to EBITDA covenant restriction from 3.00:1 to 3.50:1 for the remainder of 2009 (3.00:1 for the remaining term thereafter) and a decrease to the current ratio covenant restriction from 1.20:1 to 1.10:1 for the remainder of the term of the Credit Facility. Newalta also elected to reduce the principal amount of the Credit Facility from $425.0 million to $375.0 million. NOTE 4. RECONCILIATION OF ASSET RETIREMENT OBLIGATIONS The total future asset retirement obligations were estimated by management based on the anticipated costs to abandon and reclaim facilities and wells, and the projected timing of these expenditures. The reconciliation of estimated and actual expenditures for the period is provided below: ------------------------------------------------------------------------- Three months ended March 31, 2009 2008 ------------------------------------------------------------------------- Asset retirement obligations, beginning of period 21,094 20,985 Expenditures incurred to fulfill obligations (243) (612) Accretion 448 462 ------------------------------------------------------------------------- Asset retirement obligations, end of period 21,299 20,835 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOTE 5. SHAREHOLDERS' CAPITAL a) Shareholders' capital Authorized capital of Newalta Inc. consists of an unlimited number of common shares and an unlimited number of preferred shares issuable in series. The following table is a summary of the changes in Shareholders' capital during the period: ------------------------------------------------------------------------- Shares (No.) Amount ($) ------------------------------------------------------------------------- Shares outstanding as at October 29, 2008 - - ------------------------------------------------------------------------- Shares issued pursuant to the Arrangement 42,400 509,369 ------------------------------------------------------------------------- Shares outstanding as at December 31, 2008 42,400 509,369 ------------------------------------------------------------------------- Shares issued 94 248 ------------------------------------------------------------------------- Shares outstanding as at March 31, 2009 42,494 509,617 ------------------------------------------------------------------------- b) Unitholders' capital ------------------------------------------------------------------------- Units (No.) Amount ($) ------------------------------------------------------------------------- Units outstanding as at December 31, 2007 41,417 496,027 Contributed surplus on rights exercised - 241 Rights exercised 209 1,913 Units issued under the DRIP(1) 774 11,188 Units cancelled under the Arrangement (42,400) (509,369) ------------------------------------------------------------------------- Units outstanding as at December 31, 2008 and March 31, 2009 - - ------------------------------------------------------------------------- (1) Distribution Reinvestment Plan of the Fund NOTE 6. CAPITAL DISCLOSURES Newalta's capital structure consists of: ------------------------------------------------------------------------- March 31, December 31, 2009 2008 ------------------------------------------------------------------------- Senior long-term debt 258,956 263,251 Letters of Credit or bonds issued as financial security to third parties (Note 10) 62,954 64,457 Convertible debentures, debt portion 109,757 109,419 Shareholders' equity 494,353 500,849 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 926,020 937,976 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The objectives in managing the capital structure are to: - Utilize an appropriate amount of leverage to manage risk and optimize the return on shareholders' equity - Provide borrowing capacity and financial flexibility Management and the Board of Directors review and assess Newalta's capital structure and dividend/distribution policy at least at each regularly scheduled board meeting which are held at a minimum four times annually. The financial strategy may be adjusted based on the current outlook of the underlying business, the capital requirements to fund growth initiatives and the state of the debt and equity capital markets. In order to maintain or adjust the capital structure, Newalta may: - Issue shares from treasury - Issue new debt securities - Cause the return of letters of credit with no additional financial security requirements - Replace outstanding letters of credit with bonds or other types of financial security - Amend, revise, renew or extend the terms of its then existing long-term debt facilities - Enter into new agreements establishing new credit facilities - Adjust the amount of dividends paid to shareholders - Sell idle, redundant or non-core assets Management monitors the capital structure based on measures required pursuant to the Credit Facility agreement which restricts Newalta from declaring dividends and distributing cash if the Corporation is in breach of a covenant under the Credit Facility. These measures include: ------------------------------------------------------------------------- March 31, December 31, Ratio 2009 2008 Threshold ------------------------------------------------------------------------- Current(1) 1.36:1 1.34:1 1.10:1 minimum Funded Debt(2) to EBITDA(3) 2.88:1 2.46:1 3.50:1 maximum Fixed Charge Coverage(4) 1.13:1 1.19:1 1.00:1 minimum ------------------------------------------------------------------------- (1) Current Ratio means, the ratio of consolidated current assets to consolidated net current liabilities (excluding the current portion of long-term debt and capital leases outstanding, if any). (2) Funded debt is a non-GAAP measure, the closest measure of which is long-term debt. Funded debt is calculated by adding the senior long- term debt to the amount of letters of credit outstanding at the reporting date. (3) Funded Debt to EBITDA means the ratio of consolidated Funded Debt to the aggregate EBITDA for the trailing twelve-months. Funded Debt is generally defined as long-term debt and capital leases including any current portion thereof but excluding future income taxes and future site restoration costs. EBITDA is defined as the trailing twelve- months of EBITDA for Newalta Inc. which is normalized for any acquisitions completed during that time frame and excluding any dispositions incurred as if they had occurred at the beginning of the trailing twelve-months. Funded debt to EBITDA will remain at 3.50:1 for the remainder of 2009. The ratio will revert to 3.00:1 in 2010. (4) Fixed Charge Coverage Ratio means, based on the trailing twelve month period, EBITDA less unfinanced capital expenditures and cash taxes to the sum of the aggregate of principal payments (including amounts under capital leases, if any), interest (excluding accretion for the convertible debentures), dividends paid for such period, other than cash payments in respect of a dividend reinvestment plan, if any. Unlike the Funded Debt to EBITDA ratio, the Fixed Charge Coverage ratio trailing twelve month EBITDA is not normalized for acquisitions or dispositions. NOTE 7. LONG-TERM INCENTIVE PLANS a) The 2008 Option Plan On January 2, 2009 a total of 842,500 options were granted to certain directors, officers and employees of the Corporation. The options were granted at the market price of $5.31 per share. Each tranche of the options vest over a four year period (with a five year life), and the holder of the option can exercise the option for either a share of Newalta Inc. or an amount of cash equal to the difference between the exercise price and the market price at the time of exercise. The options granted under the 2008 Plan have therefore been accounted for as stock appreciation options and the total compensation expense for these options was nil for the three months ended March 31, 2009, (nil for the same period in 2008). b) Share Appreciation Rights On January 2, 2009, 791,500 share appreciation rights were granted to certain employees and an officer of the Corporation at the market price of $5.31. Each tranche of these rights vests over a four year period (with a five year life). The holder of the right has the option to exercise the right for an amount of cash equal to the difference between the exercise price and the market price at the time of exercise. The rights granted have been accounted for as stock appreciation rights. Total compensation expense for these rights was nil for the three months ended March 31, 2009 (nil for the same period in 2008). NOTE 8. EARNINGS PER SHARE/UNIT Basic earnings per share/unit calculations for the three months ended March 31, 2009 and 2008 were based on the weighted average number of shares/units outstanding for the periods. Diluted earnings per share/unit include the potential dilution of the outstanding options to acquire shares and from the conversion of the Debentures. The calculation of dilutive earnings per share does not include anti- dilutive options. These options would not be exercised during the period because their exercise price is higher than the average market price for the period. The inclusion of these options would cause the diluted earnings per share to be overstated. The number of excluded options for the three months ended March 31, 2009 was 2,830,200 (2,110,000 in 2008). The dilutive earnings per share calculation does not include the impact of anti-dilutive Debentures. These debentures would not be converted to shares during the period because the current period interest (net of tax) per share obtainable on conversion exceeds basic earnings per share. The inclusion of the Debentures would cause the diluted earnings per share to be overstated. The number of shares issuable on conversion of the Debentures excluded for the three months ended March 31, 2009 was 5,000,000 (5,000,000 in 2008). ------------------------------------------------------------------------- Three Months Ended March 31, 2009 2008 ------------------------------------------------------------------------- Weighted average number of shares/units 42,402 41,543 Net additional shares if rights exercised - 92 Net additional shares if debentures converted - - ------------------------------------------------------------------------- Diluted weighted average number of shares/units 42,402 41,635 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOTE 9. UNITHOLDER DIVIDENDS/DISTRIBUTIONS DECLARED AND PAID a) Dividends During the quarter, Newalta declared a dividend of $0.05 per share to holders of shares of record on March 31, 2009. These dividends were paid on April 15, 2009. b) Distributions Prior to conversion to a corporation on December 31, 2008, the Fund made monthly distributions to its holders of trust units. Determination of the amount of cash distributions for any period was at the sole discretion of the Board of Trustees of the Fund and was based on certain criteria including financial performance as well as the projected liquidity and capital resource position of the Fund. Distributions were declared to holders of trust units of record on the last business day of each month, and paid on the 15th day of the month following (or if such day was not a business day, the next following business day). ------------------------------------------------------------------------- Three Months Ended March 31, 2008 ------------------------------------------------------------------------- Unitholder distributions declared 23,077 per unit - $ 0.555 Unitholder distributions - paid in cash 19,136 Unitholder distributions - value paid in units 3,896 paid in cash - per unit $ 0.461 issued units - per unit $ 0.094 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOTE 10. COMMITMENTS a) Letters of Credit and Surety Bonds As at March 31, 2009, Newalta had issued letters of credit and surety bonds in respect of compliance with environmental licenses in the amount of $48.4 million and $14.5 million respectively. NOTE 11. FINANCIAL INSTRUMENTS FAIR VALUES Newalta's financial instruments include accounts receivable, note receivable, accounts payable and accrued liabilities, dividends payable, senior long-term debt and convertible debentures. The fair values of Newalta's financial instruments that are included in the consolidated balance sheet, with the exception of the convertible debentures, approximate their recorded amount due to the short term nature of those instruments for accounts receivable, accounts payable and accrued liabilities and for senior long-term debt and the note receivable due to the floating nature of the interest rate. The fair values incorporate an assessment of credit risk. The carrying values of Newalta's financial instruments at March 31, 2009 are as follows: ------------------------------------------------------------------------- Total Held for Loans and Available Other Carrying trading Receivables for sale Liabilities Value ------------------------------------------------------------------------- Accounts receivable - 88,521 - - 88,521 Note receivable - 1,081 - - 1,081 Accounts payable and accrued liabilities - - - 87,068 87,068 Dividends payable - - - 2,125 2,125 Senior long-term debt(1) - - - 258,956 258,956 ------------------------------------------------------------------------- (1) Net of related costs. The fair value of the Debentures is based on the closing trading price on the Toronto Stock Exchange as follows: ------------------------------------------------------------------------- As at March 31, 2009 Carrying Quoted fair value(1) value ------------------------------------------------------------------------- 7% Convertible debentures due November 30, 2012 111,607 77,338 ------------------------------------------------------------------------- (1) Includes both the debt and equity portions. FINANCIAL INSTRUMENT RISK MANAGEMENT Credit risk Newalta is subject to risk from its trade accounts receivable balances. The customer base is large and diverse and no single customer balance exceeds 5% of total accounts receivable. Newalta views the credit risks on these amounts as normal for the industry. Credit risk is minimized by Newalta's broad customer base and diverse product lines and is mitigated by the ongoing assessment of the credit worthiness of its customers as well as monitoring the amount and age of balances outstanding. Based on the nature of its operations, established collection history, and industry norms, receivables are not considered past due until 90 days after invoice date although standard payment terms require payment within 30 to 120 days. Depending on the nature of the service and/or product, customers may be provided with extended payment terms while Newalta gathers certain processing or disposal data. Included in the Corporation's trade receivable balance, are receivables totalling $4.1 million which are considered to be outstanding beyond normal repayment terms at March 31, 2009. A provision of $1.0 million has been established as an allowance against doubtful accounts. No provision has been made for the remaining balance as there has not been a significant change in credit quality and the amounts are still considered collectable. Newalta does not hold any collateral over these balances. ------------------------------------------------------------------------- Aging Trade Receivables Allowance for Net Receivables aged by doubtful accounts invoice date March December March December March December 31, 2009 31, 2008 31, 2009 31, 2008 31, 2009 31, 2008 ------------------------------------------------------------------------- Current 52,348 58,049 23 9 52,325 58,040 31-60 days 17,506 28,953 21 7 17,485 28,946 61-90 days 4,668 6,608 71 52 4,597 6,556 91 days + 4,134 6,503 992 1,465 3,142 5,038 ------------------------------------------------------------------------- Total 78,656 100,113 1,107 1,533 77,549 98,580 ------------------------------------------------------------------------- To determine the recoverability of a trade receivable, management analyzes accounts receivable, first identifying customer groups that represent minimal risk (large oil and gas and other low risk large companies, governments and municipalities). Impairment of the remaining accounts is determined by identifying specific accounts that are at risk, and then by applying a formula based on aging to the remaining amounts receivable. All amounts identified as impaired are provided for in an allowance for doubtful accounts. The changes in this account for three months ended March 31, 2009 are as follows: ------------------------------------------------------------------------- Allowance for doubtful accounts March 31, 2009 ------------------------------------------------------------------------- Balance, beginning of period 1,533 Additional amounts provided for 108 Amounts written off as uncollectible (549) Amounts recovered during the period 15 ------------------------------------------------------------------------- Balance, end of period 1,107 ------------------------------------------------------------------------- Liquidity risk Ultimate responsibility for liquidity risk management rests with the Board of Directors of Newalta Inc., which has built an appropriate liquidity risk management framework for the management of the short, medium and long-term funding and liquidity management requirements. Management mitigates liquidity risk by maintaining adequate reserves, banking facilities and other borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Newalta is exposed to interest rate risk to the extent that its Credit Facility has a variable interest rate. Management does not enter into any derivative contracts to manage the exposure to variable interest rates. The Debentures have a fixed interest rate until November 30, 2012, at which point, any remaining convertible debentures will need to be repaid or refinanced. The table below provides an interest rate sensitivity analysis for the three months ended March 31, 2009: ------------------------------------------------------------------------- Net earnings ------------------------------------------------------------------------- If interest rates increased by 1% with all other variables held constant (518) ------------------------------------------------------------------------- Market risk Market risk is the risk that the fair value or future cash flows of our financial instruments will fluctuate because of changes in market prices. Newalta is exposed to foreign exchange market risk. Foreign exchange risk refers to the risk that the value of a financial commitment, recognized asset or liability will fluctuate due to changes in foreign currency exchange rates. The risk arises primarily from firm commitments for receipts and payments settled in U.S. dollars. Management does not enter into any financial instruments to manage the risk for the foreign currency exposure. The table below provides a foreign currency sensitivity analysis on accounts receivable and accounts payable outstanding as at March 31, 2009: ------------------------------------------------------------------------- Net earnings ------------------------------------------------------------------------- If the value of the U.S. dollar increased by $0.01 with all other variables held constant 87 ------------------------------------------------------------------------- NOTE 12. SUPPLEMENTARY CASH FLOW INFORMATION The following tables provide supplemental information. ------------------------------------------------------------------------- Change in non-cash operating net assets Three Months Ended March 31, 2009 2008 ------------------------------------------------------------------------- Changes in current assets 35,627 (2,101) Changes in current liabilities (28,065) (23,733) Dividends/distributions payable 5,435 (45) Other (223) 820 Changes in capital asset accruals 10,702 7,249 ------------------------------------------------------------------------- Decrease (increase) in non-cash working capital 23,476 (17,810) ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net additions to capital assets Three Months Ended March 31, 2009 2008 ------------------------------------------------------------------------- Capital expenditures during the quarter (8,115) (17,973) Changes in capital asset accruals (10,702) (7,249) Other 90 65 ------------------------------------------------------------------------- Additions to capital assets (18,727) (25,157) ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOTE 13. COMPARATIVE FIGURES Income Statement 2008 comparative information reflects the reclassification of foreign exchange gains and losses from selling, general and administrative expenses to operating expenses. Prior to the fourth quarter of 2008, gains and losses as a result of fluctuations in the U.S. dollar exchange rate were immaterial, and Newalta tracked and reported the effects of these fluctuations centrally as an administrative cost. The reclassified foreign exchange gain for the first quarter in 2008 was $0.6 million. Segmented Information The Western and Eastern Division and Unallocated 2008 comparative information in Note 14 reflects the reclassification of foreign currency exchange gains and losses from selling, general and administrative expenses to operating expenses. NOTE 14. SEGMENTED INFORMATION Newalta has two reportable segments. The reportable segments are distinct strategic business units whose operating results are regularly reviewed by the Corporation's executive officers in order to assess financial performance and make resource allocation decisions. The reportable segments have separate operating management and operate in distinct competitive and regulatory environments. The Western segment recovers and resells crude oil from oilfield waste, rents drill cuttings management and solids control equipment, provides environmental services comprised of environmental projects and drilling waste management, collects liquid and semi-solid industrial wastes as well as automotive wastes, including waste lubricating oil, and provides mobile site services in western Canada. Recovered materials are processed into resalable products. The Eastern segment provides industrial waste collection, pre-treating, transfer, processing and disposal services and operates a fleet of specialized vehicles and equipment for waste transport and onsite processing, a lead recycling facility and an emergency response service in central and eastern Canada. The accounting policies of the segments are the same as those of Newalta. ------------------------------------------------------------------------- For the Three Months Ended March 31, 2009 Consol- Inter- Unallo- idated Western Eastern segment cated(3) Total ------------------------------------------------------------------------- External revenue 65,970 46,568 - - 112,538 Inter segment revenue(1) 156 - (156) - - Operating expense 46,376 40,681 (156) - 86,901 Amortization and accretion expense 6,319 3,289 - 3,204 12,812 ------------------------------------------------------------------------- Net margin 13,431 2,598 - (3,204) 12,825 Selling, general and administrative 13,607 13,607 Finance charges 5,580 5,580 ------------------------------------------------------------------------- Earnings (loss) before taxes 13,431 2,598 - (22,391) (6,362) ------------------------------------------------------------------------- Capital expenditures and acquisitions(2) 2,654 4,115 - 1,346 8,115 ------------------------------------------------------------------------- Goodwill 62,280 41,317 - - 103,597 ------------------------------------------------------------------------- Total assets 533,025 406,770 - 72,183 1,011,978 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- For the Three Months Ended March 31, 2008 Consol- Inter- Unallo- idated Western Eastern segment cated(3) Total ------------------------------------------------------------------------- External revenue 93,973 56,162 - 41 150,176 Inter segment revenue(1) 301 - (301) - - Operating expense 58,936 42,526 (301) - 101,161 Amortization and accretion expense 5,661 3,810 - 1,901 11,372 ------------------------------------------------------------------------- Net margin 29,677 9,826 - (1,860) 37,643 Selling, general and administrative - - - 14,835 14,835 Finance charges - - - 6,266 6,266 ------------------------------------------------------------------------- Earnings (loss) before taxes 29,677 9,826 - (22,961) 16,542 ------------------------------------------------------------------------- Capital expenditures and acquisitions(2) 7,423 6,266 - 4,284 17,973 ------------------------------------------------------------------------- Goodwill 62,280 41,317 - - 103,597 ------------------------------------------------------------------------- Total assets 553,826 401,894 - 72,386 1,028,106 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Inter-segment revenue is recorded at market, less the costs of serving external customers. (2) Includes capital asset additions and the purchase price of acquisitions. (3) Management does not allocate selling, general and administrative, taxes, and interest costs in the segment analysis.

For further information:

For further information: please contact: Anne M. MacMicken, Executive
Director, Investor Relations, Phone: (403) 806-7019


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